|The mystery of the murdered economic expansion||The mystery of the murdered economic expansion||Luis Torres||Torres||2019-07-11T05:00:00Z||Economy|
Former Federal Reserve Chairman Janet Yellen: "I don’t think economic expansions die of old age."
Yellen’s predecessor, Ben Bernanke, in response: "I like to say they get murdered."
The "murderers" in the past have been financial imbalances like over-leveraging or the Federal Reserve raising rates too fast. Now, as the U.S. economy achieves the longest expansion recorded in the nation’s history, recession fears are rising, and we’re once again looking for the culprit.
One likely suspect: the growing debt from the nonfinancial sector, such as corporate debt. Outstanding debt by nonfinancial companies, as a percentage of gross domestic product, is at a historical high.
In the past, interest rates that were too low for too long could contribute to financial imbalances, as they could encourage excessive leveraging. The U.S. economy is currently in a state of slow productivity growth with persistently low inflation leading to low interest rates. Even with these conditions, it is unclear whether nonfinancial businesses are taking more risk than they should.
Another important unknown is what happens if credit conditions change because investors’ perceptions of risk or their willingness to take on risk changes? This could cause a decrease in the supply of loanable funds, leading to a credit crunch.
Also, even though inflation pressures are currently low, what happens if inflation comes back, causing a sharp rise in interest rates?
These are difficult questions to answer, but one thing is clear: nonfinancial business sector debt is at a historical high, and we need to keep it under surveillance.
|Buying a home in a flood-prone area? Do some homework first||Buying a home in a flood-prone area? Do some homework first||Luis Torres||Torres||2019-07-02T05:00:00Z||Housing|
Texas coastal cities have been hit by numerous flood events over the past 30 years, resulting in billions of dollars in damage. Recently, a reporter with Bankrate.com asked for advice for homebuyers looking to buy in flood-prone areas. The bottom line: a little research in advance can save buyers a lot of distress in the long run.
Bankrate: How do you determine what hurricane/flood zone a home you're considering purchasing is located in?
You can search homes by address through the Federal Emergency Management Agency’s (FEMA) online flood map service center. Be careful, though, because flood maps change over time. An area may currently have a low risk of flooding, but that could change. Also, keep in mind that, according to FEMA, about one quarter of all flood insurance claims come from low- or moderate-risk areas.
Just because a home has not flooded previously doesn’t mean it won’t flood tomorrow. Consider whether you are downstream from a dam or reservoir. Following Hurricane Harvey, many Houston homes were damaged by the release of water, not by the actual hurricane.
How do you research a home you might want to buy that's in a hurricane zone?
You can use FEMA’s map service to search for the address. Also, call your county and look at other sources, such as local universities, for research on flooding.
How do you make sure that your home is protected if you do opt to buy in a hurricane or flood zone?
A buyer must become knowledgeable, not just informed. Read the flood insurance policy carefully. Note the type of protection and the covered causes of flooding. Flood insurance does not cover everything. Damage caused by moisture, mildew, or mold is generally not covered. Damage to currency, precious metals, valuables such as stock certificates and property and belongings outside the home will come out of your pocket, too. Temporary housing is generally not covered.
What are the most important factors to consider when you're considering a home in a hurricane zone?
The degree of flooding risk is an important factor. The year the home was built is important because flood maps change. A home that was originally “safe” can find itself in a high-risk area and not meet the necessary standards for the new flood zone. Has the home flooded in the past? Are you near a reservoir or dam? What type of damage has the home sustained? What is the cost of insurance? What is the insurance going to protect you against? What has happened to home prices in the region? Have they been increasing or decreasing?
What are the financial implications of buying a home in a hurricane zone?
Hurricane-prone areas result in higher insurance payments and lower home-price growth. In other words, you can expect lower return on a home purchase. Insurance may not cover everything, and there may be difficulty when trying to sell the house later.
You can read Bankrate's article online.
|In search of Tierra Grande on a Saturday afternoon||In search of Tierra Grande on a Saturday afternoon||Bryan Pope||Pope||2019-05-02T05:00:00Z||Center News|
"Here's an idea." Those three words fill me with two parts excitement and one part trepidation. My boss, Senior Editor David Jones, says this. A lot. He's an idea guy.
David recently Googled "Tierra Grande" and discovered what appeared to be a Census-designated place in Nueces County outside of Corpus Christi bearing that name. Now, a little context for the uninitiated: Tierra Grande
is the name of the Real Estate Center's 40+-year-old quarterly magazine. You can read it here
. More context: I grew up in a small farming town near Corpus and occasionally visit my folks there.
"Here's an idea," David said. "You should go find Tierra Grande next time you're down that way." As luck would have it, I had scheduled a visit to see my parents within the next couple of weeks.
Two Saturdays later, armed with my wife's Canon and a sad little excuse for a roadmap, and accompanied by my trusty guides (mom and dad weren't about to miss out on such a potentially fun adventure), I sallied forth to the outskirts of Corpus Christi in search of our El Dorado.
We each had our assigned roles. Mine was to drive; my mom's, to navigate. From the back seat, my dad made it his job to let us know whether the crops we passed were grain, cotton, or corn. Also his job: to draw my attention to the many potholes, which I invariably hit (my fault for overstepping my role trying to help my mom make heads or tails of the map). On a side note, my parents' car has terrific shock absorption.
Our efforts were rewarded, but in ways we'd not expected. My mom was hoping to find a small subdivision with a lovely entrance landscaped with large rocks, flowers, perhaps a lovely water feature, and absolutely the name "Tierra Grande." My dad thought there might be a water tower with Tierra Grande painted in tall letters. I didn't expect us to find much of anything.
But we did.
Turns out there was a water tower, but it didn't have a name on it in letters big or small. There was, however, an ordinary green street sign that said Tierra Grande, an unexpected find after nothing but similar green signs pointing to CR 36, 34, 30, etc. The street sign marked a small community of homes. No post office or convenience store. No park or community center. Just private residences clustered together in a small forest of cedar elms surrounded by miles and miles of crops and wind turbines.
Tierra Grande had a population of 403 as of 2010, roughly 40 more than in 2000. The population is practically booming! We didn't get the feeling there were as many residents there as Wikipedia claimed, but those we saw waved and smiled with only mild suspicion (me taking a picture of the street sign at the intersection while my parents watched for traffic didn't help matters much). We encountered a mailman. Also a guy on a riding lawnmower. Friendly as both of them seemed, we didn't press our luck. Signs on numerous barbed-wire fences warned us trespassers would be shot.
Thank heavens my dad didn't take my mom seriously when she joked about him stealing the street sign for me to bring back to the office.
Another street sign indicated there might be children at play. We saw none, but of course it was 2:30 in the afternoon in South Texas in what already felt like summer.
So I snapped a few pics and hopped back in the car to enjoy the ride home, catching up with mom and dad on their life and the latest news from my grandmother's nursing home. My dad commented on whether he thought this year's cotton crop would be good. Considered stopping at Whataburger for vanilla malts, but didn't.
What's that adage about life sometimes being about the journey? I suppose that's true even when you're just puttering along farm roads outside Corpus Christi. Best to watch for potholes and enjoy the company. Next time, though, I'll stop for the vanilla malt.
|Advice for young real estate agents||Advice for young real estate agents||Gerald Klassen||Klassen||2019-04-24T05:00:00Z||Education|
In an April 24, 2019, article titled "2019's Best Places to Be a Real Estate Agent," WalletHub included some comments of mine in its "Ask the Experts" section. Here's what I said.
Q. Should real estate agents feel threatened by new apps and other online tools offering services to potential homebuyers?
A. Online tools will automate the simplest services provided to homebuyers. Realtors who rely on providing simple services to clients will feel the biggest impact. I liken the situation to the days of the full-service stock brokerage charging a $100 fee to execute stock trades. The internet made personal trading possible and soon discount brokers emerged charging $8 or less per trade. The brokerages that didn't adapt to the new technology disappeared. The brokerages that embraced the technology and found new fee-based services survived and thrived. The big difference is that real estate transactions are much more complex than stock trades so this works in the favor of Realtors. How many homebuyers will have the confidence to execute a home purchase on their own? The rest will require some assistance so there will always be a need for real estate agents. It will be interesting to see what technologies Realtors adopt to provide a higher level of service than they do today.
Q. How can real estate agents protect themselves from the "boom-bust" cycle of the housing market?
A. Realtors can protect their business from boom-bust cycles by learning new skills that generate revenue in the “bust" times. During busts there is always a need for appraisal and litigation support for real estate-related lawsuits. Another defensive strategy is to establish a good reputation for top notch service and high integrity. People still need to buy and sell homes during a bust period. Realtors with the best reputation will always be in demand for transactions even in the bad times.
Q. What tips do you have for a young real estate agent? What does he or she need to do to get ahead in the current market?
A. To get ahead in the current marketplace, young Realtors should do the same thing as experienced successful Realtors. Be dedicated to personal education. Learn as much about different property types, marketing and transaction types as possible. Most importantly, act with the highest level of integrity. A reputation for honesty and fair dealing will open doors to new real estate opportunities. Homebuyers will always want to do business with a Realtor having good integrity.
Q. In evaluating the best cities for real estate agents, what are the top five indicators?
A. Here are the four questions I think a Realtor should ask when evaluating the best city to conduct business:
Would I like living in this city? Will I be able to do the things that I enjoy most in life? If you aren't happy with the city you live in it will negatively impact your business.
Are job opportunities expanding in this city? If jobs are growing then more people will eventually move to the city. That creates more opportunities to succeed in real estate.
Is the population growing in this city? This is closely related to job growth. More people means more need for housing.
Does this city have an abundance of the property type I like marketing? If you don't enjoy what you are selling then it will negatively impact your business.
Q. How likely is it that the Federal Reserve will increase interest rates again in the coming months? How would that affect real estate agents?
A. I think there is a low probability that the Fed will hike the policy rate in the coming months. Slowing global economic growth will likely contribute to slower growth in the US. There are no significant inflationary pressures that would call for a rate hike. The recent decline in long term Treasury yields tells us that bond investors are concerned about future growth prospects. The falling Treasury yields are improving the prospects for Realtors because they are helping to bring down mortgage rates. In the current state of the economy there doesn't seem to be a catalyst that would motivate the Fed to increase the policy rate.
|Getting started in real estate investment||Getting started in real estate investment||Gerald Klassen||Klassen||2019-04-22T05:00:00Z||Education|
It was a short note.
“Howdy! I am a student at Texas A&M and I'm wanting to start a small passive investment into real estate. I am also a beginner and know very little about real estate but I'm eager to learn. Can you guys help me out?"
This was my reply.
Here are a few things for you to think about as you pursue real estate investment.
- What type of property interests you the most? Look at the buildings around you and figure out what looks interesting to you. Land and buildings require a great deal of care to keep them generating income, so you better like what you are managing.
- Get a job working for someone managing the type of real estate that interests you most. You need to learn how the asset works and how to take care of it. I cannot emphasize this enough. It will save you from making many mistakes.
- Managing real estate isn't a “passive" job. You need to be ready 24/7 to take care of it and serve the tenants who are paying you to be in your space.
- Plan to enroll in the Master of Real Estate Program at Texas A&M. Start talking with staff running the program so you can get the prerequisites for the program. Seats are limited so make sure you have good grades and some real estate work experience. https://mays.tamu.edu/master-of-real-estate/
- Get an internship working for a firm managing the type of real estate that interests you most. The experience will help you a lot when you are in the MRE program. It will significantly increase your odds of getting a great internship in the program.
- Go to real estate conferences to network and learn what interests you. Look into different industry organizations, such as:
- Always conduct yourself with the highest ethical standards, and do your very best to serve people. It will open doors to great real estate opportunities.
Have a suggestion for a beginning investor? Drop us a note at firstname.lastname@example.org
|Still, it beat the duck-and-cover strategy||Still, it beat the duck-and-cover strategy||David Jones||Jones, D.||2019-02-28T06:00:00Z||Housing|
Sixty years ago, the Cold War had Americans looking down, as in underground. Fearing nuclear fallout from Russian atomic bombs, some Americans put their survival hopes in belowground shelters. Shelters ranged from basic backyard models to elaborate homes with every amenity possible. Some were partially buried. Some were much deeper.
When I saw that a 1960s fallout shelter is for sale in Las Vegas for $18 million, I had to learn more.
My sister owned one of the basic models. It came with a used Fort Worth home she purchased in 1970. The house was discounted because of the shelter's large aboveground concrete dome. Although the dome was covered in soil, nothing would grow over it, and it dominated the backyard. An air vent pipe accentuated the mound.
A metal, ground-level door was the entrance to the Fort Worth shelter (see photo). Although the door had a spring, my sister said it was too heavy for her to open. She describes the entry stairs as “very steep." The shelter slept six in bunk beds, three on each side of a single room. She said it reminded her of a submarine berth like those shown in World War II movies, except hers had a slightly wider aisle.
Her basic model had a water-purification system. The portable toilet was in a separate, enclosed area. The kitchen consisted of a food pantry and a can opener. A generator provided electricity. Air was filtered.
My sister said her shelter was more useful as a storm shelter. There was consolation knowing her family had a place of refuge should a Texas tornado come their way. Furthermore, the large dirt mound offered the best place in the neighborhood for kids to play king of the hill.
The Las Vegas model on the market today is more than a shelter in time of need. It's a 2,316-sf, five-bedroom, six-bath home with a swimming pool (and waterfall), sauna, and chef's kitchen. It has 500 feet of floor-to-ceiling city and mountain murals and lighting that simulates daytime, dusk, and dawn. Read all about the Las Vegas underground bomb shelter house here.
Just for the record, not many Americans had fallout shelters. A survey at the time showed 67 percent of people thought a family shelter was too expensive. According to gizmodo.com, only 1.4 percent of Americans had a fallout shelter in 1962.
Apparently, the fear of what the neighbors would think of a fallout shelter outweighed the fear of what the Russians would do. Nearly 60 percent of Americans surveyed said that if the Russians attacked, defending the shelter from neighbors would be the biggest concern.
|Research 'roundtable': The economy will remain positive in 2019, but . . .||Research 'roundtable': The economy will remain positive in 2019, but . . .||Bryan Pope||Pope||2019-02-14T06:00:00Z||Center News|
The Real Estate Center’s research team had its monthly pow-wow earlier this week. Naturally, much of the discussion focused on what to expect from the Texas economy this year. Overall, the outlook is generally positive but with a caveat.
Center Chief Economist Dr. Jim Gaines said the economy should continue to see growth but at a slower rate than the state has experienced in recent years.
“Texas is doing pretty good, but I think we’re going to see a slowdown across all Texas markets, including employment levels,” he said, adding that the economy will still remain positive. Meanwhile, at the national level, he said GDP growth could reach its highest level of the last six years.
Other takeaways from the discussion:
- At the Texas Realtors’ winter meeting, National Association of Realtors Chief Economist Lawrence Yun said interest rates won’t do much this year. They’ll probably stay in the low 5 percent range. Yun said housing affordability will continue to be a big issue for the U.S.
- Meanwhile, in Texas, home price growth is slowing. However, the median square footage in Texas homes has been dropping, which means smaller homes are on the market and could be a factor in declining sales prices.
- Capital investment may decline this year as businesses choose to pay down debt in a slowing economy rather than start new projects, said Center Research Data Scientist Gerald Klassen.
- Activity in the state’s energy sector will be neutral, Dr. Gaines said, with oil prices neither rising nor dropping significantly but staying around $50/barrel. Research Economist Dr. Harold Hunt pointed to a survey from the Federal Reserve in which 29 percent of executives from 160 oil and gas firms said they expect prices to rise to between $60 and $65.
- Mining and logging remained the state’s top industry in December 2018, said Research Economist Dr. Ali Anari. That sector created over 40,000 new jobs year over year.
For more 2019 projections from the REC research staff, read our 2019 Texas Housing & Economic Outlook report, now online.
|Robots, A.I., and the future of economic growth||Robots, A.I., and the future of economic growth||Luis B. Torres||Torres||2019-01-24T06:00:00Z||Economy|
The low rate of U.S. productivity growth—and, consequently, the fall in potential GDP growth—in the past eight years is unprecedented. Technological advancements can help reverse that trend, but it takes time to see their benefits. For example, productivity gains from computers in the '80s didn't show up until the '90s.
Recent data do not show the current wave of innovations in robotics, artificial intelligence (A.I.), and other fields as having any greater impact on business methods and techniques than earlier industrial revolutions did. In fact, automation—as exemplified by computer numerical control machinery, industrial robots, and A.I.—has raised concerns about widespread joblessness.
For centuries, people confronted with labor-saving tools and machines have been concerned not only about the effects these new tools and machines would have on their incomes, but also on the nature of their work and lives. But like past technological waves, automation will bring new jobs that increase labor demand, wages, and employment. The negative effects of automation will be counterbalanced by the creation of new tasks in which labor has a comparative advantage.
If the benefits of introducing new tasks outweigh the negatives of replacing labor with machinery, the result will be higher wages and employment. Currently, the implications of automation for wages and employment are not entirely understood. Workforce education plays a pivotal role given that industries that are relatively education-intensive have greater value and show faster productivity growth.
If productivity growth continues to depend on automation instead of labor, the relative standing of labor, together with the task content of production, will decline. The creation of new tasks and other technologies raising the labor intensity of production and the labor share are vital for continued wage growth commensurate with productivity growth.